The marketing environment-Pestel factors and world-wide examples

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2. 3 The marketing environment 72
4 Understanding consumer behaviour 108
5 Understanding organizational buying behaviour 145
6 Understanding marketing ethics and corporate
social responsibility 180
7 Marketing research and information systems 216
8 Market segmentation and positioning 259
Marketing Analysis
PART2
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3. The marketing
environment
CHAPTER
3
“
Changeistheonlyconstant.
”A.TOFFLER
LEARNING OBJECTIVES
After reading this chapter, you should be able to:
1 describe the nature of the marketing environment
2 explain the distinction between the microenvironment
and the macroenvironment
3 discuss the impact of political and legal, economic,
ecological/physical environmental, social/cultural
and technological forces on marketing decisions
4 explain how to conduct environmental scanning
5 discuss how companies respond to environmental change
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4. 73Political and Legal Forces
CHAPTER 3
Amarketing-orientated firm looks
outwards to the environment in which
it operates, adapting to take advantage of
emerging opportunities and to minimize
potential threats. In this chapter, we will
examine the marketing environment and
how to monitor it. In particular we will
look at some of the major forces acting
on companies in their macro- and
microenvironments.
The marketing environment consists of
the actors and forces that affect a company’s
capability to operate effectively in providing
products and services to its customers. As
we saw in Chapter 2 it is useful to classify
these forces into the macroenvironment
and the microenvironment (see Fig. 3.1).
The macroenvironment consists of
a number of broad forces that affect not
only the company but also the other actors
in the microenvironment. Traditionally
four forces—political/legal, economic,
social/cultural and technological—have
been the focus of attention, with the result
that the term PEST analysis has been used
to describe macroenvironmental analysis. However, the growing importance of ecological/
physical environmental forces on companies has led to the acronym being expanded to
PEEST analysis. The microenvironment consists of the actors in the firm’s immediate
environment that affect its capabilities to operate effectively in its chosen markets.
The key actors are customers, competitors, distributors and suppliers. The macro- and
microenvironments shape the character of the opportunities and threats facing a company
and are largely uncontrollable.
This chapter will focus on the macroenvironmental forces—political/legal, economic,
ecological/physical, social/cultural and technological—that affect marketing decisions. Later
in the chapter the four dimensions of the microenvironment—customers, competitors,
distributors and suppliers—will be introduced and then examined in greater detail throughout
the book. The influence of customers on marketing decisions will be discussed in Chapters 4
and 5 and the changing nature of the supply chain examined in Chapter 5. Distribution and
competitive forces will be analysed in Chapters 17, and 19 and 20 respectively.
Political and legal forces can influence marketing decisions by setting the rules by which
business can be conducted. For example, smoking bans in public places can have
dramatic short- and long-term effects on the demand for cigarettes. Because of politicians’
power to affect business activities, companies try to cultivate close relationships with them,
both to monitor political moods and also to influence them. Sometimes, sizable contributions
to the funds of political parties are made in an attempt to maintain favourable relationships.
Never has the relationship between political forces and business been more apparent than in
the recent ‘credit crunch’, which has forced governments to financially support banks and, in
the case of the British Government, acquire Northern Rock.1
The marketing environment FIGURE 3.1
Company
Microenvironment
Macroenvironment
Economic Political/
legal
CustomersSuppliers
CompetitorsDistributors
Social/
cultural
Ecological/
physical
Technological
Political and Legal
Forces
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5. The marketing environment74
CHAPTER 3
In Europe, companies are affected by legislation at EU and national levels. We will first
examine EU-wide laws before discussing the impact of national laws on business life.
European Union-wide laws
EU laws exist at two levels: (i) regulations that are binding on member states and (ii)
directives that are binding only through enactment of a law within the member state in line
with the directive. A major influence at European level is EU competition, which is based on
the belief that business competitiveness benefits from intense competition. The role of
competition policy, then, is to encourage competition in the EU by removing restrictive
practices and other anti-competitive activities. This is accomplished by tackling barriers to
competition through rules that form a legal framework within which EU firms must operate.
The objects of these legal rules are to:
prevent firms from colluding by price fixing, cartels and other collaborative activities—•
competition is encouraged by preventing firms joining forces to act in a monopolistic way
prevent firms from abusing a position of market dominance—they are discouraged from•
taking such actions as monopoly and discriminatory pricing, which could harm small
buyers with little bargaining power
control the size that firms grow to through acquisition and merger—the objective is to•
prevent firms acquiring excessive market power through acquiring, or merging with, other
firms within defined markets, and thereby reaping monopolistic profits
restrict state aid to firms—it can be in a nation’s interest for its government to give state•
aid to ailing firms within its boundaries; on a broader scale this can give artificial
competitive advantages to recipient firms, which may, for example, be able to charge lower
prices than their unsupported rivals; recipients may also be unfairly shielded from the full
force of the competitive pressures affecting their markets.
We will now review each of these rules to illustrate the impact they have made on firms’
activities.
Collusion
The European Commission, whose job it is to enforce EU rules, has had considerable success
in disbanding and fining cartels. For example, cartel partners ABB Løgstør, Henss/Isoplus,
Sigma and six other firms were fined for price fixing, market sharing and bid rigging in the
European insulated heating pipe market. More recently, BA was fined £270 million for
conspiring with Virgin Airways (who escaped prosecution because it alerted the regulators
about the price fixing) to fix the price of passenger fuel surcharges on transatlantic flights;2
and glass manufacturers, Saint-Gobain, Pilkington, Asahi Glass and Soliver, were fined a total
of over £1000 million for illegally fixing the price of glass used in the car industry.3
Such
actions are having a real impact on firms’ behaviour, as Marketing in Action 3.1 explains.
The success the European Commission has had in locating and punishing those firms that
collude acts as a major deterrent through both the severity of the fines imposed and the bad
publicity that results.
Abuse of market dominance
Market dominance has also been successfully challenged, as when Italian cigarette producer
and distributor AAMS was found to be abusing its dominant position for the wholesale
distribution of cigarettes in Italy. AAMS was protecting its own sales by imposing restrictive
distribution contracts on foreign manufacturers, which limited the access of foreign cigarettes
to the Italian market.4
However, the most high-profile case is that against Microsoft, which
was fined £340 million for its alleged misuse of its near monopoly in operating systems to
squeeze out rivals by bundling Media Player into the Windows operating system.5
This was
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6. 75Political and Legal Forces
CHAPTER 3
followed by a £650 million fine for failing to disclose complete and accurate technical
information on ‘reasonable terms’ to allow rivals to develop products that would work with
Windows.9
Acquisitions and mergers
The laws relating to acquisitions and mergers are designed to prevent firms building up
excessive market power through acquiring, or merging with, other companies within a
market, resulting in monopolistic profits. Action can take the form of the blocking of mergers
or acquisition—such as the prevention of the merger between Swedish truck, bus and coach
builders Scania and Volvo—or approval subject to strict conditions—such as the requirement
that Nestlé sell a number of Perrier brands to encourage a third force to emerge in the French
mineral water market to compete with Nestlé and BSN.
State aid
The giving of financial aid to companies by member states can provide unfair advantages such
as the ability to charge lower prices than their unsupported rivals. EC approval of state aid is
usually given as part of a restructuring or rescue package for ailing firms. The general
principle is that such payments should be ‘one-offs’ to prevent uncompetitive firms being
repeatedly bailed out by their governments. This has not always applied, however, with Air
France being given financial assistance several times.10
Overall, though, the level of state aid
given to firms in most of the EU member states is declining.
National laws
In addition to EU laws, member states also have the right to make their own legislation
governing business practice. This can mean inconsistencies across Europe. For example,
national laws governing advertising across Europe mean that what is acceptable in one
The European Commission’s Crusade Against Cartels
Both in the USA and the EU the battle against price-fixing cartels has never been so strongly fought. In the
USA, auction houses Sotheby’s and Christie’s were convicted of fixing the prices they charge clients. For many
years America has been obsessed by bringing down price-fixing cartels but the message is now spreading,
with new measures against anti-competitive cartel behaviour such as bid rigging and deals to carve up market
share being adopted from Sweden to South Korea.
Since 2000, the European Commission has crusaded with renewed vigour against cartels including those in
the vitamins, airline, cigarette, glass, carbonless paper, graphide electrodes, citric acid, amino acid,
monochloroacetic acid and banking industries. Such actions have stretched its resources to the limit, which is
one reason it has published a Green Paper designed to encourage customers and competitors to place
private claims for damages resulting from anti-competitive practices, an action that moves it towards the US
anti-trust regime, which relies heavily on private litigation.
One of the driving forces behind the EC’s efforts to drive out anti-competitive behaviour is the desire to create
a genuine single market in Europe, where geographic ‘market sharing’ is seen as highly damaging.
Companies are responding by educating themselves. Roche, for example, has put thousands of its managers
through training to teach them to follow the law.
Based on: Ritson (2002);6
Buck (2005);7
Murphy and Yuk (2008)8
3.1 Marketing in Action
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7. The marketing environment76
CHAPTER 3
country is banned in another. For example, toys cannot be advertised in Greece, tobacco
advertising is illegal in Scandinavia, the UK and Italy, alcohol advertising is banned on
television in France and at sports grounds, and in Germany any advertisement believed to be
in bad taste can be prohibited. This patchwork of national advertising regulations means that
companies attempting to create a brand image across Europe often need to make substantial
changes to advertising strategy on a national basis.
Supplementing the work of the European Commission are national bodies set up to
investigate anti-competitive practices. For example, the Competition Commission in the UK,
the Bundeskartellant in Germany and the Competition Council in France provide national
protection against anti-competitive behaviour. These investigations can lead to heavy fines.
For example the Financial Services Authority, which overseas the UK financial services
industry, fined Shell £17 million under national market abuse provision relating to the
overstating of oil reserves.11
Self-regulation also occurs at national level, with industries drawing up codes of practice
to protect consumer interests, sometimes as a result of political pressure. Examples of such
regulatory bodies in the advertising industry are the Deutscher Werbat (Germany), Stichting
Reclame Code (Netherlands), Marknads Etiska Radet (Sweden) and the Advertising
Standards Authority (UK). The Code of Advertising Standards and Practice drawn up by the
Advertising Standards Authority is designed to keep advertising ‘legal, decent, honest and
truthful’. Similarly, the marketing research industries in many European countries have drawn
up codes of practice to protect people from unethical activities such as using marketing
research as a pretext for selling.
Marketing management must be aware of the constraints on its activities made by the
political and legal environment. Such staff must assess the extent to which they feel the need
to influence political decisions that may affect their operations, and the degree to which
industry practice needs to be self-regulated in order to maintain high standards of customer
satisfaction and service. Above all, companies need to ensure that their activities are in accord
with EU and national laws and codes of practice.
The economic environment can have a critical impact on the success of companies through
its effect on supply and demand. Companies must choose those economic influences
that are relevant to their business and monitor them. We will examine four major economic
influences on the marketing environment of companies: economic growth and unemployment,
interest and exchange rates, the move by 10 central and eastern European countries to join the
EU, and the growth of the ‘Bric’ economies (Brazil, Russia, India and China).
Economic growth and unemployment
The general state of both national and international economies can have a profound effect on
a company’s prosperity. Economies tend to fluctuate according to the business cycle, although
more enlightened economic management in recent years has reduced the depth of the
contraction in some countries. Most of the world’s economies have gone through a period of
significant growth since the mid-1990s, driven partly by productivity gains brought about by
developments in computing and telecommunications technologies. This growth was followed
by an economic slump in 2009, referred to as the ‘credit crunch’. During periods of boom,
well-managed companies experience an expansion in the demand for their products, while
slump may bring a decline in sales as consumers became wary of discretionary expenditures.
A major marketing problem is predicting the next boom or slump. Investments made during
periods of high growth can become massive cash drains when consumer spending falls
suddenly. The problems facing some of the world’s leading technology firms, such as Cisco
Economic Forces
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8. 77Economic Forces
CHAPTER 3
Systems, Compaq (since acquired by Hewlett-Packard) and Intel, in recent years were partly
caused by this trap.
Within an economy, different sectors experience varying growth rates, leading to changing
degrees of market attractiveness. Undoubtedly, the services sector has experienced the fastest
growth and become the dominant force in most western economies. For example, among the
25 EU countries, services account for over 70 per cent of gross domestic product, which is
a measure of the total value of goods and services produced within an economy.
Low growth rates are reflected in high unemployment levels, which in turn affect consumer
spending power. The recent recession has caused unemployment rates to rise and consumer
spending to fall. This has led to calls for state aid for ailing companies—for example, in the
motor car industry—to help them through the slump.
Interest and exchange rates
A key monetary tool that governments use to manage the economy is interest rates. Interest
rates represent the price that borrowers have to pay lenders for the use of their money over
a specified period of time. Most western economies lowered interest rates during the credit
crunch to encourage borrowing and lending, in an effort to avert a major slump in consumer
and business demand.
An exchange rate is the price of one currency in terms of another (e.g. an exchange rate
of £1 = 1.20 means that £1 buys 1.20). Fluctuations in exchange rates mean that the price
a consumer in one country pays for a product and/or the money that a supplier in an overseas
country receives for selling that product can change. For example, if the exchange rate
between the pound sterling and the euro changes, such that a pound buys fewer euros, a
German car manufacturer who receives payment in euros will receive fewer euros if the price
of the car remains unchanged in the UK. In an attempt to maintain a constant euro price, the
German car manufacturer may raise the UK pound sterling price to UK distributors and
consumers. The following example illustrates these points.
At £1 = 1, a German car manufacturer would receive 10,000 for a £10,000 car. If the
exchange rate changed to £1 = 0.5, the German car manufacturer’s receipts would fall to
5000. To maintain euro receipts at 10,000 the UK price would have to rise to £20,000.
The exchange rates between most European countries are now fixed, thus avoiding such
problems. However, the rates at which major currencies such as the US dollar, the euro, the
pound sterling and the yen are traded are still variable. As seen in the example above this
can have significant implications for sales revenues and hence the profitability of a firm’s
international operations. For example, as the value of the US dollar fell during 2004 amid
concerns about the inclining US trade deficit and the cost of the Iraq war, losing about one-
third of its value against the pound and the euro, the profitability of some European firms
trading in the USA fell as their receipts in pounds and euros fell at constant US dollar prices.
For example, it is estimated that Heineken’s operating profits in the USA fell from £250
million to £84 million between 2002 and 2006 largely because of the fall in the value of the
dollar during this period.12
During the credit crunch, the pound fell against the dollar. This
meant that UK goods and services exported to euro zone countries could be sold cheaper, or,
if sold at the same price, would realize higher sterling profit margins.
Central and eastern Europe
The move by eight central and eastern European countries to join the EU in May 2004, and
their earlier change from centrally planned to market-driven economies has far-reaching
marketing implications. The EU is a massive, largely deregulated market in which barriers
to the free flow of goods, services, capital and people among the member states are removed.
One objective is to lower the costs of operating throughout Europe and to create an enormous
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9. The marketing environment78
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free market in which companies can flourish. As we have already seen, competition is
encouraged through the enactment and enforcement of laws designed to remove restricted
practices and other anti-competitive activities.
The eight central and eastern European EU members that joined the EU in 2004 are the
Czech Republic, Slovakia, Hungary, Latvia, Lithuania, Estonia, Poland and Slovenia. Their
combined population is about 75 million within the EU’s total of 454 million, although
Poland alone accounts for 39 million.13
In 2007, Romania and Bulgaria also joined the EU.
The strengths of these economies are high economic growth that is double that of western
Europe, low wages that are often competitive with those in China and India, an abundance of
engineers and technical graduates, workers who have a flexible mind-set and ‘can do’ attitude,
low corporate income taxes, and easy access to wealthy western European and Russian
markets. Weaknesses are a shortage of trained managers, corruption and bureaucracy in some
of the countries, poor-quality roads in some countries (e.g. Poland) and, by western
standards, low levels of wealth.14
The strengths of these economies, boosted by EU membership, have led to considerable
inward investment. Today the region is attracting foreign investment at the rate of £21 billion
a year, which places it second only to China in the international competition for capital. For
example, LG Philips, the liquid crystal display producer spent £246 million to make flat-
screen televisions in Poland, creating 3200 jobs. Investment in knowledge-driven industries
ranging from telecoms to pharmaceuticals is also gathering pace. For example, the region’s
growing ranks of highly skilled workers mean that it is shaping up as the next outsourcing
destination for engineering and software development after China and India.15
The region is
also fast becoming a manufacturing centre for the production of cars, with companies such as
Toyota, Ford, GM, Fiat, Audi, Volkswagen, Renault, Citroën, Suzuki and Kia having at least
one car plant in the region.
Clearly, the rise of central and eastern European economies not only poses threats to
western European firms in terms of potential new competition, but also opportunities. First,
as we have already seen the region’s strengths make it an attractive location for new
investment. Second, the eight new EU members have a combined population of 75 million
and a gross domestic product of £473 billion, making it a sizeable target market. These
statistics need to be tempered by the fact that many of the individual countries are small
(Poland dominates, with 39 million consumers) and poor. However, all these economies are
growing and opportunities exist from the privatization of industries such as energy
generation and railways.16
China and India
Why are western nations watching the economies of China and India like hawks? First, both
economies are growing at high and consistent rates, although both, like other major economies,
have suffered during the recent recession. For the past 20 years, China’s economy has been
growing at an average of 9.5 per cent and India’s at 6 per cent. Second, both nations possess
considerable strengths, traditionally in low-cost labour but increasingly in technical and
managerial skills. China possesses strengths in mass manufacturing, and is currently building
massive electronics and heavy industrial factories. India, on the other hand, is an emerging
power in software, design, services and precision industry. These complementary skills are
persuading some electronics multinationals to have their products built in China with software
and circuitry designed in India. Furthermore, the skills base in both countries is likely to grow,
with China and India graduating a combined half a million engineers and scientists a year.17
Third, China and India not only pose threats to western companies, they also provide
opportunities. Chinese consumers are spending their growing incomes on consumer durables
such as cars, a market that has reached 3 million, and mobile phones where China has the
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10. 79Economic Forces
CHAPTER 3
world’s biggest subscriber base of over 500 million, and computers, where over 200 million
people browse the Internet on broadband connections.18
Both have vast populations,
with 1.3 billion people in China and 1 billion living in India. As Carl Leaver, Marks &
Spencer’s international strategy director, remarked, ‘If one in eight of the Chinese population
ends up wearing M&S knickers, we will be very happy.’19
In India, the consumer market is
also growing rapidly. For example, since 2000 the number of mobile phone subscribers has
rocketed from 5.6 million to 80 million, and Internet users total over 20 million. Over half
of India’s 1 billion people are under 25.20
Western companies such as Microsoft, Procter &
Gamble, Coca-Cola, BP, Vodafone, Tetley, Siemens and GlaxoSmithKline have seen the
potential of these markets (particularly China) and sought to develop them, usually with
the aid of local partners.
While both countries possess considerable strengths, they also have weaknesses. First,
neither country has a strong track record in global brand building. A survey of Financial
Times readers conducted by McKinsey, the management consultancy, to find out what
businesspeople around the world consider are the top Chinese brands rated Haier, a white-
goods and home appliances company first and Lenovo, a computer company, famous for
buying IBM’s personal computer division, second. Neither company is a major global player
in their respective markets.21
India, similarly, does not possess major global brands. However,
the conglomerate Tata is building a global presence with its purchase of Jaguar and Land
Rover from Ford, the acquisition of Corus (steel) and the growth of Tata Consultancy
Services, Asia’s largest software company.22
Second, both countries suffer from the risk of
social strife—resulting from the widening gap between rich and poor, as well as corruption.
Third, both countries have paid a steep ecological price for rapid industrial and population
growth, with millions of deaths attributed to air and water pollution each year.23
Fourth, wage
levels are rising fast, particularly in skilled areas, reducing their advantage in low labour costs.
Fifth, bureaucracy can make doing business in both countries difficult. China, in particular,
has been a destination for western goods and foreign investment but great care needs to be
taken when entering the Chinese market, as Marketing in Action 3.2 explains.
To what extent do you believe China and India pose threats to European firms?
3.1 Pause for Thought
Russia and Brazil
Like China and India, Russia and Brazil had been growing at impressive rates before the
recent recession. Russia’s economy has benefited from 7 per cent growth and Brazil’s 5 per cent.
Surprisingly for an ex-communist state, Russia has one of the lowest income tax rates in the
world: a flat rate of 13 per cent. Also all Russians own their own homes, having been given
their own flat or house free as the Soviet era ended (most of these, however, are in a poor state
of repair). Wealth tends to be centred around Moscow and there are cash-rich consumers
present, as the fact that Russia is the fourth biggest consumer of luxury goods after the USA,
Japan and China testifies.24
Russia’s economy is largely dependent on oil and gas. It vies with Saudi Arabia as the
world’s largest oil producer, and has the world’s largest gas reserves. It is also rich in gold, with
the fourth largest reserves. Russia’s large population of 140 million, which has rapidly become
richer, has attracted international food and drink companies such as Unilever, PepsiCo, Kellogg,
Kraft, Nestlé, Coca-Cola and Carlsberg, which have entered by acquisition. For example,
PepsiCo purchased the Russian food and drinks group Lebedyansky for over £1 billion.25
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11. The marketing environment80
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Doing Business in China
Marketing in any overseas country is difficult because of differences in culture, and local laws and regulations.
China is particularly troublesome, with many companies—such as Whirlpool, a US white-goods manufacturer
that lost more than £26 million in a series of joint ventures, and food multinational Kraft, which was forced to
close its loss-making dairy business after eight years—finding life uncomfortable in the Chinese market.
In order to succeed, overseas companies need to recognize a number of guidelines. First, they must
appreciate the diversity of the market. A country with 1.3 billion people speaking 100 dialects is vastly
diverse, and the need to segment the market is essential. For example, Samsung discovered that consumers
living in humid Guangdong Province needed larger refrigerators than those in the more temperate north, so it
started marketing bigger fridges in the south. P&G has targeted consumers in less affluent rural districts with a
budget detergent called Tide Clean White, while targeting richer city consumers with the more expensive Tide
Triple Action. To understand customers, domestic and multinational companies are conducting focus groups
and surveys. For example, the Grey Global Group, a Chinese advertising agency, has segmented Chinese
consumers into 11 categories based on their lifestyle and aspirations. These groups range from independents
who do not follow consumer trends to shoppers on the cutting edge.
Western firms often enter China by means of a joint venture, but they need to be aware of the different
business scenarios there. In China there is no effective rule of law governing business. One potential
drawback is that western companies can fall prey to the theft of intellectual property. Other problems that
western companies complain about include the siting of projects in inappropriate locations so local authorities
can charge inflated land use costs, and inflation of costs by joint venture partners. Bureaucracy and
governmental interference can also bring difficulties. Thames Water reportedly had to pull out of a 20- year
water treatment project in Shanghai after the government ruled that the guaranteed rate of return to investors
was illegal. Technical problems can also hamper joint ventures. For example, Chrysler ended its small car
venture with Cherry Automobile because of their failure to bring the cars’ safety and environmental
performance up to western standards. For Ericsson, the world’s largest telecommunications equipment
producer, entering into a contract with China’s two biggest mobile phone companies—China Mobile and
China Unicom—the rewards of a joint venture could be enormous. The deal is worth $1.44 billion to help
supply China’s mobile networks.
Western companies also need to understand the importance of Guanxi networks. Guanxi is a set of
personal relationships/connections on which a person can draw to obtain resources or an advantage
when doing business. Guanxi is one reason why working with a Chinese partner is usually better than
going it alone. When entering into business relationships the Chinese seek stability and trust more than
intimacy. They want to feel comfortable that western companies will not spring surprises that may hurt them,
but they do not need to feel that they are the company’s best friend. It is claimed that the failure of Rupert
Murdoch’s NewsCorp to penetrate China is largely because the company did not spend enough time and
effort on building guanxi.
The media also have to be handled with care. Severely restrained in reporting domestic politics and social
issues, Chinese media feel much freer to attack foreign companies. Chinese reporters need to be educated
about the western company’s business, treated with respect, and regular contact to develop personal
relationships is recommended.
Based on: McGregor (2005);26
Roberts and Rocks (2005);27
Singh (2005);28
Anderlini and Reed (2008);29
Bulkley (2008);30
Ibison (2008)31
3.2 Marketing in Action
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12. 81Ecological/Physical Environmental Forces
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Working in Russia can be highly profitable for western companies, but can be fraught with
problems, as the battle for control of the TNK-BP joint venture showed. Although BP managed
to keep 50 per cent of the ownership, it was forced to sacrifice its chief executive and agree to
international expansion, even when that meant competing with existing BP interests.32
Brazil’s industry is linked to agri-business and other primary products. Its main output
arises from sugar, steel, oil and iron. It also has an important technological sector that ranges
from submarines to aircraft, and is involved in space research. Its economy has benefited from
high levels of foreign investment by such companies as Procter & Gamble, IBM, Ford, DuPont,
Anheuser-Busch InBev and PepsiCo. Its two largest companies are Petrobas (oil and gas) and
Vale (mining). It is also a major producer of ethanol, a sugar-based biofuel. Growth in the
economy has led to rising demand for cars, mobile phones, computers and televisions. It has a
large population of 190 million. However, like the other Bric nations, Brazil has not developed
significant brand-building capabilities.33
Companies need to be aware of the economic forces that may affect their operations and
be wary of assuming that a benign economic environment will last for ever. Sudden changes
in growth, interest and/or exchange rates can alter the economic climate quickly so that
contingency plans are needed to cope with economy-induced downturns in demand. Firms
also need to monitor the international economic environment, including the change to market-
driven economies and the move into the EU by central and eastern European countries, and
the opportunities and threats posed by the rise of China and India as major economic forces.
Ecology is the study of living things within their environmental context. In a marketing
context it concerns the relationship between people and the physical environment.
Environmentalists attempt to protect the physical environment from the costs associated with
producing and marketing products. They are concerned with the environmental costs of
consumption, not just the personal costs to the consumer. Five environmental issues are of
particular concern. These are combating global warming, pollution control, conservation of
energy and other scarce resources, use of environmentally friendly ingredients and
components, and the use of recyclable and non-wasteful packaging.
Global warming
Concerns about global warming and the problems associated with climate change have arisen
as a result of a quadrupling of carbon dioxide emissions over the last 50 years. More extreme
weather conditions, such as hurricanes, storms and flooding, which are reported to be
associated with carbon dioxide-induced climate change, are already impacting industries such
as insurance, agriculture and oil. BP, for example, took a billion-dollar battering from
Hurricane Katrina in the USA.34
To avoid irreversible environmental consequences it has
been agreed internationally that two forms of preventative action are required:35
reduction of CO1 2 emissions
a ban on the use of chlorofluorocarbons (CFCs).2
The purpose is to prevent further depletion of the ozone layer, which lets through increased
levels of ultraviolet radiation with potentially harmful health and environmental effects.
Governmental response through the Kyoto international agreement, changes in consumer
behaviour, and individual action taken by companies such as GE, BP and Bayer to reduce
harmful emissions, is required to achieve the objective. Car manufacturers also have
a responsibility to reduce their carbon footprint. Marketing Ethics and Corporate Social
Responsibility in Action 3.1 discusses how Honda is responding to the challenge. Hitachi is
also taking steps to reduce its carbon footprint, as illustrated in its advertisement.
Ecological/Physical
Environmental
Forces
Ad
insight
Go to the
website to see
Honda’s TV ad
promoting its
environmentally-friendly
credentials
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13. The marketing environment82
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Honda Fights Back
When consumers think of petrol-electric hybrid cars, the Prius usually springs to mind. Not only has this car
built Toyota’s environmentally friendly image, it has also sold over 1 million worldwide. Honda, by contrast,
like many of its rivals, has lagged behind in the race to build successful hybrid cars. In a major strategic move
Honda has decided to make major investments in hybrid technology to expand its range of hybrids. It hopes
to sell 500,000 hybrid cars a year by 2012, up from only 55,000 in 2007.
What are Honda’s specific plans? First, it intends to launch a dedicated hybrid model. Unlike Toyota, with its
dedicated hybrid Prius, other manufacturers usually make hybrid versions of petrol-only cars. Second, it intends
to build hybrid versions of the Jazz, a new Civic hybrid, and a hybrid based on its CR-Z concept sports car.
A problem for hybrid sales has been a price gap of around £3000. Using different technology from Toyota,
Honda hopes to reduce that to around £1000. Although not as powerful as Toyota’s hybrid technology, the
Honda system is lighter and so its new models should offer higher mileage.
Honda has clearly seen the opportunities provided by cleaner technology and is prepared to back its judgement
by heavy investment.
Based on: Reed and Soble (2008);36
Rowley (2008)37
3.1 Marketing Ethics and Corporate Social Responsibility in Action
 This Hitachi advertisement communicates how the company is quietly helping to preserve the planet by
reducing its CO2 emissions by 100 million tons by 2025.
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14. 83Ecological/Physical Environmental Forces
CHAPTER 3
Pollution
The manufacture, use and disposal of products can have a harmful effect on the quality of
the physical environment. The production of chemicals that pollute the atmosphere, the use
of nitrates as a fertilizer that pollutes rivers, and the disposal of by-products into the sea have
caused considerable public concern. In recent years the introduction of lead-free petrol
catalytic converters, and the launch of hybrid cars such as the Toyota Prius and the Honda
Civic, has reduced the level of harmful exhaust emissions.
Denmark has introduced a series of anti-pollution measures, including a charge on
pesticides and a CFC tax. In the Netherlands higher taxes on pesticides, fertilizers and carbon
monoxide emissions are proposed. Not all the activity is simply cost raising, however. In
Germany, one of the marketing benefits of its involvement in green technology has been
a thriving export business in pollution-control equipment.
Energy and scarce resource conservation
The finite nature of the world’s resources has stimulated the drive towards their conservation.
Energy conservation is reflected in the demand for energy-efficient housing and fuel-efficient
cars, for example. In Europe, Sweden has taken the lead in developing an energy policy based
on renewable resources. The tax system
penalizes the use of polluting energy sources
such as coal and oil, while less polluting
resources such as peat and woodchip
receive favourable tax treatment. In
addition, it is planning to become the
world’s first oil-free economy by 2020, not
by building nuclear power stations but by
utilizing renewable resources such as wind
and wave power, geothermal energy and
waste heat. The plan is a response to warnings
that the world may be running out of oil,
global climate change and rising petrol prices.
The UK is also responding by committing to
generate 10 per cent of its electricity from
renewable sources by 2012.38
Companies are
also making more energy-efficient products.
For example, Siemens manufactures energy-
efficient fridge freezers (see illustration).
An opportunity that is arising over
the need to reduce reliance on oil is the
development of biofuels. Fuels based on
ethanol have the potential to replace petrol.
Already the Saab 9-5 BioPower and a
version of the Ford Focus can run on either
petrol or ethanol. A problem is that ethanol-
based fuel costs 20 pence a litre more than
unleaded petrol, but as petrol rises in price
and ethanol production costs fall this may
change. If so, Europe has the capacity to
 Siemens makes energy-efficient fridge freezers.
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15. The marketing environment84
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provide around 40 per cent of the fuel it needs for transport from ethanol fermented from
crops (e.g. corn and sugar beet) and biodegradable waste. However, the penetration of
biofuels as a source of clean power has been hampered by fears of food shortages (as biofuel
crops replace traditional food crops) and deforestation.39
Another concern of environmentalists is the consumption of wood. Forest depletion
by the deforestation activities of companies and the effects of acid rain damage the ecosystem.
Consumers’ desire for soft and hardwood furniture and window frames is at odds with the
need to preserve forests. Trees’ leaves absorb carbon dioxide and their roots help to stabilize
slopes: a landslide in the Philippines that cost many lives was allegedly caused by illegal
logging. A solution is the replanting of forests to maintain the long-term stock of trees.
Environmentally friendly ingredients and components
Environmentalists favour the use of biodegradable and natural ingredients and components
when practicable, and PETA (People for the Ethical Treatment of Animals) campaigns against
cruelty to animals. Companies have responded to the challenge by launching products such
as the Estée Lauder Origins skincare and cosmetics range of vegetable-based products
containing no animal ingredients. Plastic products and components have been the target
of criticism because of their non-biodegradability, but biodegradable polymers are now
available. For example, Biopol was developed by ICI, which claims it is the first fully
biodegradable commercial plastic. Its applications include disposable nappies, rubbish bags,
and paper plates and cups that are coated with a thin plastic film.
Concern has also been expressed over the use of genetically modified (GM) ingredients
in food products since the health implications are uncertain. Pressure from consumer groups
and the media have forced Monsanto, a pioneer in genetic modification, to stop further
development, supermarkets to banish such products from their shelves, and countries such as
Austria, France, Germany, Greece, Italy and Luxemburg to impose import bans.
Recycling and non-wasteful packaging
Germany took the lead in the recycling of packaging when it introduced the Verpackvo, a law
that allows shoppers to return packaging to retailers and retailers to pass it back to suppliers.
In response, suppliers promised to assume responsibility for the management of packaging
waste. Over 400 companies have created a mechanism called the Dual System Deutschland
(DSD). Consumers are asked to return glass bottles and waste paper to recycling bins and are
also encouraged to separate other recyclable materials such as plastics, composite packaging
and metals, and place them in yellow bags and bins supplied by the DSD. Collection takes
place every month and is, together with separation of the refuse, paid for by the DSD and
the cost eventually absorbed by the packaging manufacturers. Recycling is also important
in Sweden, where industry has established a special company to organize the collection
and sorting of waste for recycling, and in Finland where over 35 per cent of packaging
is recycled.
Companies can promote recycling by, for example, using recycled paper for burger
containers rather than styrene, which is non-biodegradable. Not only is cutting out waste in
packaging environmentally friendly, it also makes commercial sense. Thus companies have
introduced concentrated detergents and refill packs, and removed the cardboard around
some brands of toothpaste, for example. The savings can be substantial: in Germany, Lever
GmbH saved 15 per cent of paper, carton and corrugated board; 30 per cent by introducing
concentrated detergents; 20 per cent by using lightweight plastic bottles; and the introduction
of refills for concentrated liquids reduced the weight of packaging materials by half. Henkel
has introduced special 22-gram ‘light packs’, which are polyethylene bottles that save 270 tons
of plastic a year.
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16. 85Ecological/Physical Environmental Forces
CHAPTER 3
Marketing managers need to be aware of the environmental consequences of their
decisions and activities, and recognize the dangers to the reputations of their companies and
brands of environmentally irresponsible actions. They should also consider communicating
their environmentally conscious credentials. For environmental groups, marketing provides
the tools to spread awareness of their campaigns, as Digital Marketing 3.1 explains.
Friends of the Earth Uses Digital Marketing to Raise Awareness of Environmental Campaigns
Activists and environmental organizations have led the way in drawing attention to the impact of business and
trade on the health of the planet. Since the early 1970s, Friends of the Earth—‘the grassroots environmental
network’—has campaigned hard in this area and has become the UK’s most influential campaigning
organization, which promotes environmentally sustainable societies at local, national, regional and global
levels. The organization focuses its activities on environmental issues, which have social, political and human
rights implications. Campaigns reach into many different areas of activity (e.g. car fuel efficiency, agro-fuels,
climate change and energy consumption, nuclear power, trade and globalization). Ultimately, Friends of the
Earth seeks to influence the government and business to make policy changes that will benefit the planet.
Friends of the Earth has faced many tough challenges and conflicts when campaigning for business to change
procedures. Cadbury Schweppes shareholders were left with a bitter taste in their mouths when Friends of the
Earth campaigners handed out chocolate bars outside their annual general meeting to raise awareness of
Cadbury’s (and other food producers’) use of palm oil in the manufacturing process. The campaign specifically
aimed to highlight how this hidden ingredient is damaging the environment, and Friends of the Earth wanted
the re-labelling of products so consumers are more informed about what they are buying (e.g. ‘WARNING:
May contain traces of deforestation and exploitation’).
Digital interactive media have provided a communication channel that enables Friends of the Earth to
successfully attract attention and develop its global network with current and new supporters (currently,
approximately 1 million supporters across five continents). Its innovative use of new media and digital
technologies includes live interactive discussion groups and real-time opinion polls on current climate issues;
it uses viral marketing tools such as e-cards to connect with a wider audience through links to friends and
family, and e-commerce solutions to collect donations.
Arguably, the most innovative online campaign is ‘the big ask’. Friends of the Earth created an online march
by asking the public to post video clips online to appeal to the UK Government to make important decisions
about climate change laws. The campaign was very successful as it contributed to the government’s decision
to form a new coalition looking at climate change. A series of ‘big ask’ live concerts raised awareness of
climate issues, which highlighted that three-quarters of UK citizens support laws reducing carbon emissions.
In 2008, in conjunction with a gig by the band Razorlight, pressure was put on the government to say yes to
including aviation and shipping in the carbon emissions bill.
Digital technologies and online marketing have enabled Friends of the Earth to communicate campaign issues
to a much wider audience, and in doing so to elicit more support and influence on environmental policy.
Based on: Friends of the Earth Europe;40
Friends of the Earth Trust (2004)41
3.1 Digital Marketing
We shall explore in more detail how marketing should respond to environmental issues
in Chapter 6, which deals with understanding Marketing Ethics and Corporate Social
Responsibility.
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17. The marketing environment86
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Three key social/cultural forces that have implications for marketing are the changes in the
demographic profile of the population, cultural differences within and between nations,
and the influence of consumerism. Each will now be examined.
Demographic forces
Demographic forces concern changes in populations in terms of their size and characteristics.
Demography is important to marketers because it helps to predict the size and growth rates
of markets, and the need for products such as schools, one-person housing and homes for
the elderly. Three major demographic forces are world population growth, the changing age
distribution and the changing structure of households in western countries.
World population growth
Overall, the global population is expanding at an increasing rate. However, the rate of growth
is uneven across the world. In particular, the population in developed economies is expected
to be stable or shrinking, whereas countries of Africa, India, ‘other Asia’ and Latin America
are expected to account for over 90 per cent of the projected population increase during the
twenty-first century (see Fig. 3.2).42
As these countries grow more youthful, the developed
countries will play host to an ageing population. In 2025, half the population of Europe
will be over 45 years old. For the next decade, the world population is expected to grow
by an average of 97 million per year.
The changing world population distribution suggests that new markets outside the
developed economies may provide attractive opportunities, although the extent to which this
force progresses will depend on a concomitant rise in income levels in the less developed
world. The problem is that the major growth is predicted to be in countries that are already
poor. Concern for their well-being is growing among people in the developed world. One
response is the social marketing of family planning and birth control. Companies such as
Hewlett-Packard and Citibank are increasingly focusing their attention on these so-called
‘pre-markets’ (i.e. those not yet sufficiently
developed to be considered consumer
markets). For example, Hewlett-Packard
aims to sell, lease or donate a billion dollars
worth of computer equipment and services
to these under-served markets.43
Age distribution
A major demographic change that will
continue to affect the demand for products
is the rising proportion of people over the
age of 45 in the EU, and the decline in the
younger age group. The rise in over-45s
creates substantial marketing opportunities
because of their high level of per capita
income. They have higher disposable
income and higher levels of savings than
younger people, tend to benefit from
inheritance wealth, and are healthier
than ever before. In France, for example,
the average per capita disposable income
for households headed by a retired person
Social/Cultural
Forces
World population growth FIGURE 3.2
12
10
8
6
4
2
0
Billion
Africa
Other Asia
India
China
Latin America
Developed
1950 2000 2050 2100
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18. 87Social/Cultural Forces
CHAPTER 3
is now higher than the average for all households, and people over 60 (who constitute
18 per cent of the population) consume more than 22 per cent of the French gross domestic
product (GDP).
Another demographic change is the growth in the numbers of retired people in Europe.
This is partly because people are living longer but also because of early retirement. For
example, although the official UK retirement age is 65 and likely to rise, early retirement
schemes and redundancies have meant that a high proportion of people below this age group
are, in effect, retired—for example, over 30 per cent of men aged 55–64 have already left the
labour market. High disposable income, coupled with increasing leisure time, means that
the demand for holidays and recreational activities such as golf, fishing and walking should
continue to increase. Also there should be increasing demand for medical products and
services, housing designed for elderly couples and singles, and single-portion foods.
Understanding the needs of the over-45s presents a huge marketing opportunity, so that
products can be created that possess the differential advantages valued by these people.
In reality it is likely that there are a number of subgroups according to age band, which will
allow market segmentation to be used. The overall implication of these trends is that many
consumer companies may need to reposition their product offerings to take account of the
rise in ‘grey’ purchasing power.
Household structure
Changes in household structure and behaviour that have marketing implications are the rise
in one-person households, households with no children and the growth in dual-income
families.
More people are living alone by choice, through divorce or bereavement. This suggests
that a key market segment is people who demand products that meet their particular needs,
such as one-bedroom houses or apartments, and single-portion foods. The proportion of
couples who have no children has also increased. This may reflect a desire to maintain high
standards of living for longer. The implication is an increase in the attractiveness of markets
where couples are likely to spend their disposable income, such as restaurant meals, luxury
holidays and designer clothing.
Households are also changing behaviour regarding employment. In many European
countries there has been a growth in dual-earner families. In the UK, for example, over half
of couples with dependent children are double-income families. The rise of two-income
households means that this market segment has high disposable income, leading to reduced
price sensitivity and the capacity to buy luxury furniture and clothing products (e.g. upmarket
furniture and clothing) and expensive services (e.g. foreign holidays, restaurant meals). Also,
the combination of high income and busy lives has seen a boom in connoisseur convenience
foods. Marks & Spencer, in particular, has catered for this market very successfully. Demand
for homecare facilities has also risen.
Cultural forces
Culture is the combination of traditions, taboos, values and attitudes of the society in which
an individual lives. A number of distinctive subcultures in the UK provide a rich tapestry of
lifestyles and the creation of new markets. The Asian population, for example, has provided
restaurants and stores supplying food from that part of the world. This influence is now seen
in supermarkets, where Asian foods are readily available. The free movement of workers
around the EU has also encouraged the growth of subcultures—for example, the flow of
workers from central and eastern Europe to older, established EU countries. To meet the
needs of the Polish community in the UK, for example, Tesco now runs a groceries website
in the Polish language.44
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19. The marketing environment88
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Subcultures can also span national boundaries. For example, the existence of a youth
subculture across Europe has allowed brands such as Levi’s jeans, Coca-Cola, Pepsi and
MTV to be marketed with only modest adaptation to local tastes. Young consumers spend
considerable time communicating with others via the Internet. The existence of social
networking sites such as Facebook and MySpace means that they can share information, post
photographs and download music. These sites provide huge opportunities and challenges for
marketers to reach young audiences.
Do you believe European firms could do more to market successfully to different cultures within and between
nations?
3.2 Pause for Thought
Attitudes towards food among some sections of society in Europe are also changing.
Pressures toward healthy eating have prompted moves towards food with less fat, sugar and
salt, and health labelling. For example, the Nestlé-branded cereal range targeted at children
has been reformulated with 10 per cent less sugar. New brands focusing on their healthy
credentials have emerged, like innocent (see illustration).
Market segments have appeared based on the concept of ethical consumption, leading to
demand for fair trade and organic products, and avoidance of companies and brands that are
associated with dubious labour practices.
The growth in healthy eating and ethical
consumption has prompted the acquisition
of Green & Black’s chocolate by Cadbury,
and Ben & Jerry’s by Unilever.
Successful non-European marketing
depends on knowing the cultural
differences that exist between European
consumers. The German preference for
locally brewed beer has proved a major
barrier to entry for foreign brewers, such
as Guinness, which have attempted to
penetrate that market. The slower than
expected take-off of the Euro Disney
complex near Paris was partly attributed to
French consumers’ reluctance to accede to
the US concept of spending a lot of money
on a one-day trip to a single site. Once
there, the French person, being an
individualist, ‘hates being taken by the
hand and led around’.45
Cultural differences also have
implications for business-to-business
 The innocent brand has been remarkably
successful, tapping into the healthy living lifestyle.
It has extended its product line from smoothies to
vegetable pots.
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20. 89Social/Cultural Forces
CHAPTER 3
marketing. Within Europe, cultural variations affect the way business should be conducted.
Humour in business life is acceptable in the UK, Italy, Greece, the Netherlands and Spain but
less commonplace in France and Germany. These facts of business life need to be recognized
when interacting with European business customers.
A study by Mole examined business culture in the EU and the USA.46
Management styles
were analysed using two dimensions: type of leadership and organization. Figure 3.3 shows
the position of each of the 13 nations according to these two characteristics. Individual
leadership (autocratic, directive) is to be found in Spain and France, whereas organic
leadership style (democratic, equalitarian) tends to be found in Italy and the Netherlands.
Systematic organization (formal, mechanistic) is found in Germany, Denmark and the
Netherlands, while organic companies (informal, social) are more likely to exist in Spain,
Italy, Portugal and Greece.
Based on the Mole survey, Wolfe describes business life in Italy, Spain and the
Netherlands.47
As Figure 3.3 shows, Italian organizations tend to be informal, with democratic
leadership. Decisions are taken informally, usually after considerable personal contact and
discussion. Italian managers are flexible improvisers who have a temperamental aversion to
forecasting and planning. Interpersonal contact with deciders and influencers in the decision-
making unit (DMU) is crucial for suppliers. Finding the correct person to talk to is not easy
since DMUs tend to be complex, with authority vested in trusted individuals outside the
apparent organizational structure. Suppliers must demonstrate commitment to a common
purpose with their Italian customers.
In Spain, on the other hand, business is typified by the family firm where the leadership
style is autocratic and the organizational system informal. Communications tend to be
vertical, with little real teamwork. Important purchasing decisions are likely to be passed to
top management for final approval, but good personal relationships with middle management
are vital to prevent them blocking approaches.
Leadership in the Netherlands is more democratic, although organizational style tends to
be systematic, with rigorous management systems designed to involve multilevel consensus
decision-making. Buying is, therefore,
characterized by large DMUs and long
decision-making processes as members
attempt to reach agreement without conflict
or one-sided outcomes.
Consumerism
Consumerism takes the form of organized
action against business practices that are not
in the interests of consumers. Organized
action is taken through the consumer
movement, which is an organized collection
of groups and organizations whose objective
is to protect the rights of consumers.
Pressure from the consumer movement,
environmentalists, individuals who engage
in ethical consumption and the media has
resulted in many organizations adopting
corporate social responsibility as a guide to
their business practices. Corporate social
responsibility (CSR) refers to the ethical
principle that an organization should be
Management styles in the EU and the USA FIGURE 3.3
Individual
Leadership
Group
Organic Systematic
Organization
Spain France
Portugal Belgium USA
Germany
Luxembourg
Ireland
Greece UK Denmark
Italy Netherlands
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21. The marketing environment90
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accountable for how its behaviour might affect society and the environment. The importance
of CSR is reflected in the large proportion of Chapter 6 (Understanding Marketing Ethics and
Corporate Social Responsibility) that is devoted to coverage of this topic.
The consumer movement has had notable successes, including improvements in car safety,
the encouragement of fast-food restaurants to provide healthy-eating options, health labelling
of food products, and the banning of smoking in public places in some European countries
including Ireland and the UK.
Some consumer organizations, such as the Consumers’ Association in the UK, campaign
for consumers and provide information about products, often on a comparative basis that
allows consumers to make more informed choices between brands.
Marketing management should not consider the consumer movement a threat to business
but an opportunity to create new product offerings to meet the needs of emerging market
segments. For example, in the detergent market brands have been launched that are more
environmentally friendly, and food companies have reduced the fat and salt content of some
of their products.
Changes in social and cultural aspects of the marketing environment need to be
monitored and understood so that marketing management is aware of the changing tastes and
behaviour of consumers. Such changes can create demand shifts that can act as either
opportunities or threats for European companies.
Technology can have a substantial impact on people’s lives and companies’ fortunes.
Technological breakthroughs have given us body scanners, robotics, camcorders, the
Internet, mobile phones, computers and many other products that have contributed to our
quality of life. Many technological breakthroughs change the rules of the competitive game:
the launch of the computer and word-processing software has ruined the market for
typewriters; the growth of e-mail spelt the decline of the fax machine; the rise of the compact
disc decimated the market for cassette tapes.
Heavy investment in new technology can pay handsome dividends. ICI, for example,
invested heavily in the biotechnology area and is the market leader in equipment used for
genetic fingerprinting, and Apple’s investment in the technology supporting its iPod has
made it global leader in the mobile music market. The key to successful technological
investment is market understanding not technological sophistication for its own sake.
Marketing and R&D staff need to work closely together to achieve this aim. The classic
example of a high-technology initiative driven by technologists rather than pulled by the
market is Concorde. Although technologically sophisticated, management knew before
launch that it never stood a chance of being commercially viable. By contrast the development
of the Airbus A380, the world’s biggest passenger plane, has been market based, taking into
account the need for greater passenger comfort on long-haul flights, the higher revenues
accruing from a larger number of passengers per flight, and recognition that over the next
20 years around 70 per cent of flights will be from just 25 airports, many of which are so
congested they are unable to take any more planes. By using aircraft like the A380 the predicted
increase in passenger demand can be accommodated using the same number of planes.48
A lack of investment in high-potential technological areas can severely affect the
fortunes of companies. For example, Sony—once regarded as a leader in high-tech product
innovation—has lost ground due to its lack of early investment in flat-screen television, liquid
crystal display and portable audio systems, which allowed Apple to supersede the Sony
Walkman with its iPod, which not only allows high-quality mobile listening but also the
downloading of music, and for Samsung to gain a competitive advantage in flat-screen
televisions.
Technological
Forces
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22. 91The Microenvironment
CHAPTER 3
Besides investment in technological areas that have high market potential, companies
need capabilities in identifying how technology developed in one field can be exploited in
another market. For example, Teflon, which has been a major marketing success in the
coating of non-stick frying pans, was first developed as a coating on the nose cones of
space rockets. A more recent technology transfer success story is of Visco foam, which
was developed by NASA for the space programme to absorb the tremendous forces that
astronauts are subjected to during lift-off. It has been used to create Visco memory foam
beds that adjust to body position minimizing pressure points and maximizing body support.
As we have seen, technological change can provide opportunities for new product
development and also threats to existing markets. Technology also affects the way in which
marketing is conducted. Developments in information technology have revolutionized
marketing practices. Information technology describes the broad range of processes
and products within the fields of computing and telecommunications. The Internet and
mobile phone technology have allowed companies to use new channels of communication
and distribution (e.g. music downloads) to reach consumers. The importance of these
developments is reflected in Chapter 18, on digital marketing, which explores how these
advances are providing new opportunities for marketers. Salesforce automation is improving
the efficiency of salesforces, and these are described and the implications examined in
Chapter 14, on personal selling and sales management. A whole new industry, customer
relationship management (CRM), has emerged in recent years, founded on database
technologies to enable companies to improve communications and relationships with
consumers. CRM issues are discussed in Chapter 15, on direct marketing.
Marketing-led companies seek not only to monitor technological trends but also to
pioneer technological breakthroughs that can transform markets and shift competitive
advantage in their favour. They also seek to use technology to improve the efficiency and
effectiveness of their marketing operations.
The microenvironment consists of the actors in the firm’s immediate environment
that affect its capabilities to operate effectively in its chosen markets. Those actors—
customers, competitors, distributors and suppliers—will now be introduced and will be
analysed in more depth throughout the book.
Customers
As we saw in Chapter 1, customers are at the centre of the marketing philosophy and effort,
and it is the task of marketing management to satisfy their needs and expectations better
than the competition. The starting point is an understanding of them and this is considered
in Chapter 4 (Understanding Consumer Behaviour) and Chapter 5 (Understanding
Organizational Buying Behaviour). The techniques for gathering and analysing customer and
other marketing information are discussed in Chapter 7, on marketing research. Furthermore,
the grouping of consumers to form market segments that can be targeted with specific
marketing mix offerings is the subject of Chapter 8 (Market Segmentation and Positioning).
Changing customer tastes, lifestyles, motivations and expectations need to be monitored
so that companies supply the appropriate targeted marketing mix strategies that meet their
needs. Changes in consumer behaviours also need to be monitored. For example, consumers
are using social network sites like Twitter to communicate—a fact not lost on marketers, as
Digital Marketing 3.2 explains. Marketers should also seek out the latest customer needs that
currently have not been met. The discovery of these can result in lucrative unserved markets
in which first-mover advantage can be a vital asset, as was demonstrated by 3M’s Post-it
brand.
The
Microenvironment
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23. The marketing environment92
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Competition
Competitors have a major bearing on the performance of companies. For example, when
competitors price-cut the attractiveness of the market can fall and their ability to innovate can
ruin once highly profitable brands. Marketing history is littered with brands that were once
successful (e.g. Olivetti typewriters, Amstrad computers and Lotus software) but are now defunct
because rivals developed and marketed better alternatives. No longer is it sufficient to meet
customer needs and expectations—success is dependent on doing it better than the competition.
Marketing-orientated companies not only monitor and seek to understand customers but
also research competitors and their brands to understand their strengths, weaknesses, strategies
and response patterns. In this book, the importance of these issues is reflected in a section
being devoted to such analysis and the strategies that can be employed to anticipate and
combat competitive moves. These matters are discussed in Chapter 19 (Analysing Competitors
and Creating a Competitive Advantage) and Chapter 20 (Competitive Marketing Strategy).
Distributors
Some companies, such as those providing services, dispense with the use of distributors,
preferring to deal directly with end-user customers. The others use the services of distributors
Twittering Around the World
Twitter is a free-to-join social networking group, created in 2006. It has rapidly grown in popularity worldwide
and currently has roughly 4–5 million users. Twitter enables members of the network community to connect
through quick and frequent online exchanges called ‘tweets’. Tweets are text-based posts (no longer than
140 characters), which are displayed on the user’s profile page and sent to other users who have signed up
as ‘followers’. A typical tweet might explain what I am doing right now (e.g. ‘Sitting in my home office writing
a mini case study for Principles and Practice of Marketing’). Users of Twitter can control who can access their
messages (e.g. close circle of friends, work colleagues or anybody) and tweets can be sent and received
via the Twitter website, short message service (SMS) or external applications. Increasingly, individuals and
companies are providing links to Twitter trails from their websites.
In countries all around the world, people follow Twitter trails, which are relevant and of interest, to access
information and stay informed about world events or news updates from friends.
World leaders, celebrities and pop icons have been quick to recognize Twitter as a powerful communication
network. President of the United States, Barack Obama, used Twitter to gain support during the presidential
election campaign. Indeed, he was reportedly the most followed person on Twitter at the time, with over
144,000 followers. Many other world leaders are now holding press conferences via Twitter. High-profile
celebrities also use Twitter. Virgin’s Richard Branson has an account to recruit prospective employees; pop
star Britney Spears gives fans updates of her whereabouts. British tennis player Andy Murray is also a regular
tweeter; he informed his fans not long after his loss in the Australian Open Tennis Championship: ‘Just bak
from dinner. Bumpd in2 the guys from The Prodigy in hotel lobby. Tuf 2day. Fernando playd gr8 5th.’
The potential influence of Twitter and similar online social networking groups is constantly growing. For
example, Twitter users came together online in a ‘Twestival’, a global online meeting involving Twitterers
from over 170 cities around the world. Marketers should be aware of the potential significance of Twitter
in influencing consumer behaviour.
Based on: Mzimba (2009)49
3.2 Digital Marketing
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24. 93Environmental Scanning
CHAPTER 3
such as wholesalers and retailers to supply end users. As we shall see in Chapter 17, on
distribution, these channel intermediaries perform many valuable services, including
breaking bulk, making products available to customers where and when they want them,
and providing specialist services such as maintenance and installation.
Distributors can reduce the profitability of suppliers by putting pressure on profit margins.
For example, large retailers such as Wal-Mart and Tesco have enormous buying power and
can demand low prices from their suppliers, a fact that has been criticized in the media when
applied to small farmers.
Distribution trends need to be monitored. For example, the trend towards downloading
music has hit traditional music outlets that sell CDs, and the growth of the Internet-based
sellers such as Amazon has impacted on traditional bricks-and-mortar booksellers. As the
attractiveness of distribution channels changes so suppliers must alter their strategies to keep
in touch with customers.
Suppliers
The fortunes of companies are not only dependent on customers, competitors and
distributors, they are also influenced by their suppliers. Increases in supply costs can push
up prices, making other alternatives more attractive. For example, increases in the price of
aluminium make plastic more attractive. Also, as with distributors, powerful suppliers can
force up prices. The rise in the price of gas has been blamed on powerful European suppliers
who, it is alleged, restricted supply in order to force prices higher.
Companies need to monitor supply availability, such as shortages due to labour strikes or
political factors, as these can cause customer dissatisfaction and lost sales. They also need to
be sensitive to alternative input materials that can be substituted for those of existing suppliers
if the latter’s prices rise or availability diminishes significantly.
The importance of suppliers is reflected in discussion of their relationship with customers
in Chapter 5, which focuses on organizational buying behaviour. Many customers are
increasingly forming partnerships with selected suppliers in order to enhance value
delivery.
All the elements of the microenvironment need to be monitored and assessed so that
opportunities can be exploited and threats combated. This forms an essential ingredient in
maintaining strategic fit between a company and its marketing environment.
The process of monitoring and analysing the marketing environment of a company is
called environmental scanning. Two key decisions that management need to make
are what to scan and how to organize the activity. Clearly, in theory, every event in the
world has the potential to affect a company’s operations, but to establish a scanning system
that covers every conceivable force would be unmanageable. The first task, then, is to
define a feasible range of forces that require monitoring. These are the potentially relevant
environmental forces that have the most likelihood of affecting future business prospects.
The second prerequisite for an effective scanning system is to design a system that provides
a fast response to events that are only partially predictable, emerge as surprises and grow
very rapidly. This is essential because of the increasing turbulence of the marketing
environment. Ansoff proposes that environmental scanning monitors the company’s
environment for signals of the development of strategic issues that can have an influence
on company performances.50
Figure 3.4 provides the framework for corporate response, which is dependent on
an analysis of the perceived impact, signal strength and urgency of the strategic issue.
There are four approaches to the organization of environmental scanning, as follows.51
Environmental
Scanning
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25. The marketing environment94
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Line management1 : functional managers (e.g. sales, marketing, purchasing) can be required
to conduct environmental scanning in addition to their existing duties. This approach can
falter because of line management resistance to the imposition of additional duties, and
a lack of the specialist research and analytical skills required of scanners.
Strategic planner2 : environmental scanning is made part of the strategic planner’s job.
The drawback of this approach is that a head office planner may not have the depth of
understanding of a business unit’s operations to be able to do the job effectively.
Separate organizational unit3 : regular and ad hoc scanning is conducted by a separate
organizational unit and is responsible for disseminating relevant information to managers.
General Electric uses such a system, with the unit’s operations funded by the information
recipients. The advantage is that there is a dedicated team concentrating its efforts on this
important task. The disadvantage is that it is very costly and unlikely to be feasible except
for large, profitable companies.
Joint line/general management teams4 : a temporary planning team consisting of line and
general (corporate) management may be set up to identify trends and issues that may
have an impact on the business. Alternatively, an environmental trend or issue may have
emerged that requires closer scrutiny. A joint team may be set up to study its implications.
A framework for analysing and responding to environmental (strategic) issues FIGURE 3.4
Environmental
trends
Internal trends
Performance
trends
Threats—
opportunities
Strengths—
weaknesses
Issues
Minor
Impact?
Major
Weak Strong
Urgency?
Delayable Postponable Urgent
Continue to
monitor
Include in next
planning cycle
Start a gradual
commitment
project
Urgency?
Delayable Postponable Urgent
Continue to
monitor
Include in next
planning cycle
Start a priority
project
Drop from
issue list
Signal strength
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26. 95Responses to Environmental Change
CHAPTER 3
The most appropriate organizational
arrangement for scanning will depend on the
unique circumstances facing a firm. A judgement
needs to be made regarding the costs and benefits
of each alternative. The size and profitability
of the company and the perceived degree of
environmental turbulence will be factors that
impinge on this decision.
Brownlie suggests that a complete
environmental scanning system would perform
the following tasks:52
monitor trends, issues and events, and study•
their implications
develop forecasts, scenarios and issues•
analysis as input to strategic decision-making
provide a focal point for the interpretation•
and analysis of environmental information identified by other people in the company
establish a library or database for environmental information•
provide a group of internal experts on environmental affairs•
disseminate information on the business environment through newsletters, reports•
and lectures
evaluate and revise the scanning system itself by applying new tools and procedures.•
Formal environmental scanning was researched by Diffenbach, who found that
practitioners believed it provided the following benefits:
better general awareness of, and responsiveness to, environmental changes•
better strategic planning and decision-making•
greater effectiveness in dealing with government•
improved industry and market analysis•
better foreign investment and international marketing•
improved resource allocation and diversification decisions•
superior energy planning.•
Environmental scanning provides the essential informational input to create strategic fit
between strategy, organization and the environment (see Fig. 3.5). Marketing strategy should
reflect the environment even if this means a fundamental reorganization of operations.
Companies respond in various ways to environmental change (see Fig. 3.6).
Strategic marketing fit FIGURE 3.5
Fit Fit
Fit
Environment
Strategy Organization
Responses to
Environmental
Change
Ignorance
Because of poor environmental scanning, companies may not realize that salient forces
are affecting their future prospects. They therefore continue as normal, ignorant of the
environmental issues that are threatening their existence, or opportunities that could be
seized. No change is made.
Delay
The second response is to delay action once the force is understood. This can be caused by
bureaucratic decision processes that stifle swift action. The slow response by Swiss watch
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27. The marketing environment96
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manufacturers to the introduction of digital
watches was thought, in part, to be caused
by the bureaucratic nature of their decision-
making. Marketing myopia can slow response
through management being product rather than
customer focused. For example, Compaq grew
to sales of £2 billion in eight years based on
processes that produced high-quality products.
Manufacturing concentrated on quality,
sacrificing speed and economy to ensure
product excellence. Compaq’s quality-at-any-
price approach served the company well in the
early days of the personal computer industry
when customers worried about product
usability. As PCs became commodities and
nimble rivals like Dell grew, competition shifted
to value for money. Compaq continued to rely
on well-honed processes that churned out
quality products but at a price that meant they
gathered dust on dealers’ shelves.53
A third
source of delay is technological myopia, where
a company fails to respond to technological
change. An example is Kodak’s slow response to
the emergence of digital technology in cameras.
The fourth reason for delay is psychological
recoil by managers who see change as a threat and defend the status quo. These are four
powerful contributors to inertia.
Retrenchment
This response tackles efficiency problems but ignores effectiveness issues. As sales and profits
decline, management cuts costs; this leads to a period of higher profits but does nothing to
stem declining sales. Costs (and capacity) are reduced once more but the fundamental
strategic problems remain. Retrenchment policies only delay the inevitable.
Gradual strategic repositioning
This involves a gradual, planned and continuous adaptation to the changing marketing
environment. Tesco is a company that has continually repositioned itself in response to
changing social and economic trends. Originally a supermarket based on a ‘pile it high, sell it
cheap’ philosophy, it has maintained its low price positioning while moving to higher-quality
products. It has also expanded the range of products it sells (including CDs, electrical goods,
financial services and clothing) to provide one-stop shopping, and has expanded into new
market segments (Tesco Express convenience stores) and international markets including the
Far East, the USA and central and eastern Europe.
Radical strategic repositioning
Radical strategic repositioning involves changing the direction of the entire business. An
example is Nokia, which radically repositioned from being a conglomerate operating in such
industries as paper, chemicals and rubber into a world leader in mobile phones. Samsung also
successfully repositioned by transferring itself from a copy-cat producer of cheap televisions
and microwave ovens into a technology company marketing mobile phones, flat-screen
Responses to environmental change FIGURE 3.6
Environmental
change
Ignorance
Delay
Barriers to
change
Retrenchment
Gradual strategic
repositioning
Radical strategic
repositioning
Ad
insight
Go to the
website to see
how Nestle are
repositioning
their cereals
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28. 97Review
CHAPTER 3
televisions, and memory chips that are used in digital cameras, mobile phones and portable
music players such as the iPod nano.54
Radical strategic repositioning is much riskier than
gradual strategic repositioning because, if unsuccessful, the company is likely to fold.
This chapter has explored a number of major forces occurring in the marketing
environment, and has discussed methods of scanning for these and other changes that
may fundamentally reshape the fortunes of companies. Failure to respond to a changing
environment has the same effect on companies as lack of adaptation by animals: extinction.
Review
1 The nature of the marketing environment
The marketing environment consists of the microenvironment (customers, competitors, distributors and•
suppliers) and the macroenvironment (economic, social, political, legal, physical and technological forces).
These shape the character of the opportunities and threats facing a company and yet are largely uncontrollable.
2 The distinction between the microenvironment and the macroenvironment
As can be seen above, the microenvironment consists of those actors in the firm’s immediate environment•
that affect its capabilities to operate effectively in its chosen markets.
The macroenvironment consists of a number of broader forces that affect not only the company but also the•
other actors in the microenvironment.
3 The impact of political and legal, economic, ecological/physical environmental, social/cultural and
technological forces on marketing decisions
Political and legal forces can influence marketing decisions by determining the rules by which business can•
be conducted. In Europe, marketing decisions are affected by legislation at EU and national levels. EU laws
seek to prevent collusion, prevent abuse of market dominance, control mergers and acquisitions, and restrict
state aid to firms. National laws also affect marketing decisions by regulating anti-competitive practices.
Marketers who apply ethics to their decision-making should have no problem working within this legal
framework. They should also decide the extent to which they feel the need to influence political decisions that
may affect their operations.
Economic forces can impact marketing decisions through their effect on supply and demand. Key factors are•
economic growth, unemployment, interest and exchange rates and changes in the global economic
environment such as the entry of central and eastern European countries into the EU, and the rise of the
Chinese and Indian economies. Marketers need to have contingency plans in place to cope with economic
downturns, and to be aware of the opportunities and threats arising from changes in the global marketing
environment.
Ecological/physical environmental forces are concerned with the environmental costs of consumption. Five•
issues that impact marketing decisions are combating global warming, pollution control, conservation of
energy and other scarce resources, use of environmentally friendly ingredients and components, and the use
of recyclable and non-wasteful packaging. Marketers need to be aware of the environmental consequences of
their actions, and the opportunities and threats associated with ecological issues.
When you have read this chapter
log on to the Online Learning Centre at www.mcgraw-hill.co.uk/
textbooks/jobber to explore chapter-by-chapter test questions, links
and further online study tools for marketing.
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29. The marketing environment98
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Social/cultural forces can have an impact on marketing decisions by changing demand patterns (e.g. the•
growth of the over-50s market) and creating new opportunities and threats. Three major influences are
changes in the demographic profile of the population, cultural differences within and between nations, and
the impact of consumerism.
Technological forces can impact marketing decisions by changing the rules of the competitive game.•
Technological change can provide major opportunities and also pose enormous threats to companies.
Marketers need to monitor technological trends and pioneer technological breakthroughs. They should also
seek to use technology to improve marketing operations.
4 How to conduct environmental scanning
Two key decisions are what to scan and how to organize the activity.•
Four approaches to the organization of environmental scanning are to use line management, the strategic•
planner, a separate organizational unit and joint line/general management teams.
The system should monitor trends, develop forecasts, interpret and analyse internally produced information,•
establish a database, provide environmental experts, disseminate information, and evaluate and revise the
system.
5 How companies respond to environmental change
Response comes in five forms, which are: ignorance, delay, retrenchment, gradual strategic repositioning and•
radical strategic repositioning.
Key Terms
consumerism organized action against business
practices that are not in the interests of consumers
corporate social responsibility the ethical principle
that an organization should be accountable for how its
behaviour might affect society and the environment
culture the combination of traditions, taboos, values
and attitudes of the society in which an individual lives
demography changes in the population in terms of its
size and characteristics
ecology the study of living things within their environment
environmental scanning the process of monitoring and
analysing the marketing environment of a company
marketing environment the actors and forces that affect
a company’s capability to operate effectively in providing
products and services to its customers
PEEST analysis the analysis of the political/legal,
economic, ecological/physical, social/cultural, and
technological environments
Study Questions
1 Choose an organization (if you are in paid employment use your own organization) and identify the major forces
in the environment that are likely to affect its prospects in the next five to 10 years.
2 What are the major ecological/physical environmental forces acting on marketing? What are their implications
for marketing management?
3 What are the major opportunities and threats to EU businesses arising from the move to market-driven
economies of former eastern bloc countries?
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30. 99References
CHAPTER 3
4 Generate two lists of products and services. The first list will identify those products and services that are likely
to be associated with falling demand as a result of changes in the age structure in Europe. The second list will
consist of those that are likely to see an increase in demand. What are the marketing implications for their
providers?
5 How does technological change affect marketing? What should marketing management do to take account of
technological forces?
6 Evaluate the marketing opportunities and threats posed by the growing importance of the socially conscious
consumer.
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